Processing of Recovery Rebate Credit Claims During the 2021 Filing Season (2022-05-19)

Document type: Report
Date: 2022-05-19

Full text

Processing of Recovery Rebate Credit Claims
During the 2021 Filing Season

May 19, 2022

Report Number: 2022-46-032

TIGTACommunications@tigta.treas.gov | www.treasury.gov/tigta

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

HIGHLIGHTS: Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Final Audit Report issued on May 19, 2022
Report Number 2022-46-032

Why TIGTA Did This Audit
This audit was initiated to assess
the IRS’s processing of Recovery
Rebate Credit (RRC) claims during
the 2021 Filing Season.
The Coronavirus Aid, Relief, and
Economic Security (CARES) Act and
the Consolidated Appropriations
Act, 2021 (CAA) authorized the IRS
to make advance payments of the
RRCs to eligible individuals.
Taxpayers who claim the RRC on
their Tax Year 2020 returns must
reduce the credit by any advance
payment they received.
Impact on Tax Administration
As of May 27, 2021, the IRS had
processed 26.3 million tax returns
with RRC claims totaling
$39.2 billion.
Of these, the IRS issued potentially
improper RRC payments totaling
$898 million. These include
$79.8 million in the RRC that
should have been paid to eligible
individuals and $818.5 million in
the RRC that was paid to ineligible
individuals. The IRS declined to
review nearly $598 million of the
improper payments and take the
actions needed to recover them.
Additionally, the IRS stated it has
no plans to further assist
approximately 10 million
potentially eligible individuals in
receiving their payment.

What TIGTA Found
The IRS correctly calculated the allowable RRC for 26.1 million
(99.3 percent) of the 26.3 million tax returns that claimed an RRC as
of May 27, 2021. TIGTA’s testing identified 181,743 returns for which
IRS programming (11,797 returns), Error Resolution function tax
examiner (167,130 returns) errors, and timing issues (2,816 returns)
resulted in the incorrect RRC being given to the taxpayer.
In addition, 355,015 potentially ineligible individuals were
erroneously issued the RRC. These include ineligible dependents,
nonresidents, and individuals associated with a credit from a
U.S. Territory. TIGTA also identified approximately 10 million
potentially eligible individuals who have not received an RRC as of
May 27, 2021.
Finally, debit card policies and the decision to manually verify RRC
claims unnecessarily burdened taxpayers and delayed access to
stimulus payments for some taxpayers.
TIGTA issued 12 alerts during this review to alert the IRS of our
concerns. The IRS implemented programming changes to address
one alert and agreed to take action on four additional alerts. These
actions include reviewing the tax returns TIGTA identified, taking the
actions necessary to correct the taxpayers’ tax accounts, and
implementing processes to automate the error resolution process
for RRC claims filed during the 2022 Filing Season.
What TIGTA Recommended
TIGTA made 22 recommendations to the IRS. They include taking
actions needed to correct erroneous RRC payments; ensuring that
eligible individuals receive their credit, and notifying individuals who
have not filed a tax return or did not claim the RRC of their potential
eligibility. TIGTA also recommended that the IRS obtain recurring
data in Processing Year 2022 to identify individuals who have not
activated their debit card for the advance American Rescue Plan Act
stimulus payment and establish processes to reverse these advance
payments so individuals can receive the RRC on their Tax Year 2021
tax return.
The IRS agreed with eight of the 22 recommendations. The IRS did
not agree to review erroneous payments totaling nearly $598 million
that were paid to ineligible individuals as of May 27, 2021. The IRS
also did not agree to conduct analysis to identify and recover
additional erroneous RRC payments issued after May 27, 2021.
Finally, the IRS did not agree to take any actions to ensure that the
approximately 10 million potentially eligible individuals TIGTA
identified as of May 27, 2021, receive their RRC or to identify
additional individuals who are eligible for the RRC but did not claim
the credit.

U.S. DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION

May 19, 2022

MEMORANDUM FOR: COMMISSIONER OF INTERNAL REVENUE

FROM:
Michael E. McKenney

Deputy Inspector General for Audit

SUBJECT:
Final Audit Report – Processing of Recovery Rebate Credit Claims
During the 2021 Filing Season (Audit # 202140621)

This report presents the results of our review to assess the processing of the Recovery Rebate
Credit claims during the 2021 Filing Season, including ensuring that taxpayers are properly
reconciling advanced Economic Impact Payments received during Calendar Year 2020. This
review is part of our Fiscal Year 2022 Annual Audit Plan and addresses the major management
and performance challenge of Administration of Tax Law Changes and Pandemic Relief Benefits.
Management’s complete response to the draft report is included as Appendix IV.
Copies of this report are also being sent to the Internal Revenue Service managers affected by
the report recommendations. If you have any questions, please contact me or Russell P. Martin,
Assistant Inspector General for Audit (Returns Processing and Account Services).

Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Table of Contents
Background .....................................................................................................................................Page 1
Results of Review .......................................................................................................................Page 4
Calculation of Allowable Recovery Rebate Credit Was
Correct for 99.3 Percent of Claims Reviewed ............................................................Page 4
Recommendations 1 and 2: .....................................................Page 5
Recommendations 3 through 5: ..............................................Page 6
Recovery Rebate Credits Paid to Ineligible Individuals .........................................Page 7
Recommendations 6 through 8: ..............................................Page 8
Recommendations 9 and 10: ...................................................Page 9
Recommendation 11: ................................................................Page 10
Recommendation 12: ................................................................Page 11
Recommendations 13 and 14: .................................................Page 12
Recommendation 15: ................................................................Page 13
Management Needs to Take Actions to Ensure That
Eligible Individuals Receive Their Recovery Rebate Credit ...................................Page 13
Recommendation 16: ................................................................Page 14
Recommendations 17 and 19: .................................................Page 15
Debit Card Policies Unnecessarily Delay Access to
Stimulus Relief for Some Taxpayers ..............................................................................Page 15
Recommendations 20 and 21: .................................................Page 17
Manual Error Resolution Processes Caused Extended
Delays in Processing Recovery Rebate Credit Claims and
Increase the Risk of Employee Error .............................................................................Page 17
Recommendation 22: ................................................................Page 18
Appendices
Appendix I – Detailed Objective, Scope, and Methodology ................................Page 19
Appendix II – Outcome Measures .................................................................................Page 21
Appendix III – Recovery Rebate Credit Provisions ...................................................Page 27
Appendix IV – Management’s Response to the Draft Report .............................Page 29
Appendix V – Glossary of Terms ....................................................................................Page 44
Appendix VI – Abbreviations ...........................................................................................Page 45

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Background
The Coronavirus Aid, Relief, and Economic Security (CARES) Act,1 signed into law on
March 27, 2020, created a refundable tax credit, the Recovery Rebate Credit (RRC), of up to
$1,200 per eligible adult to be applied toward the taxpayer’s Tax Year 2020 tax liability. In
addition, eligible individuals can receive up to $500 for each child in their family who is under
17 years old. The CARES Act defines eligible individuals as those with adjusted gross income up
to $75,0002 ($150,000 for married couples filing a joint return). Individuals with adjusted gross
income above the income thresholds will have their credit reduced by 5 percent of the amount
by which their adjusted gross income exceeds the threshold amount. In addition to the income
requirements, individuals:
•
Must have a work-eligible Social Security Number (SSN). Married members of the
military are eligible as long as one spouse has a work-eligible SSN, i.e., one spouse can
have an Individual Taxpayer Identification Number.3
•
Must be a U.S. citizen or resident alien.
•
Cannot be claimed as a dependent on someone else’s Federal income tax return.
The Consolidated Appropriations Act, 2021 (CAA),4 enacted on December 27, 2020, created an
additional RRC of up to $600 for each eligible individual and $600 for each eligible child. The
CAA also modified the eligibility requirements for the CARES Act RRC. The CAA:5
•
Modified the SSN requirement for Married Filing Joint filers. The CARES Act
required both individuals on a Married Filing Joint return to have a valid SSN unless one
spouse is a member of the military. The CAA modified this requirement to make all
Married Filing Joint filers in which only one spouse has a valid SSN eligible for the credit.
However, the law clarified that for nonmilitary families, only the spouse and qualifying
children who have a valid SSN are to be considered when determining the credit amount
to which these filers are entitled.
•
Increased the income threshold for individuals filing as a Qualifying Widow(er)
from $75,000 to $150,000. Under the CARES Act, Qualifying Widow(er) filers with
adjusted gross income above $75,000 will have their CARES Act credit reduced by
5 percent of the amount by which their adjusted gross income exceeded the threshold
amount. The CAA increased the income threshold for Qualifying Widow(er) filers to
$150,000.
•
Provided eligibility for deceased individuals. The CARES Act did not specify whether
individuals who were deceased before January 1, 2020, qualified for the credit. The CAA
provided eligibility to individuals who died in Calendar Year 2020.

1 Pub. L. No. 116-136, 134 Stat. 281 (codified as amended in scattered sections of 2, 5, 12, 15, 20, 21, 29, 42, and
45 U.S.C.).
2 Up to $112,500 for individuals claiming Head of Household filing status.
3 See Appendix V for a glossary of terms.
4 Pub. L. No 116-260.
5 Appendix III provides a comparison of the major provisions of the CARES Act and the CAA.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Advance payments of the RRC
Both the CARES Act and the CAA authorized the Internal Revenue Service (IRS) to make an
advance payment of the respective RRCs to eligible individuals. The advance payments are
referred to as Economic Impact Payments (EIP). The CARES Act prohibited the IRS from issuing
advance payments of the CARES Act RRC after December 31, 2020. Similarly, the IRS was
required to issue advance payments under the CAA no later than January 15, 2021. Figure 1
shows the number of advance payments issued by the IRS.
Figure 1: EIPs Issued
EIP
Number
Amount
CARES EIP (EIP1)
161.9 million
$271.4 billion
CAA EIP (EIP2)
146.5 million
$141.5 billion
Total EIP Issued
308.56 million
$412.9 billion
Source: IRS, Research, Applied Analytics, and Statistics; CARES EIP (EIP1) as of
December 31, 2020; and CAA EIP (EIP2) as of February 4, 2021.
Both the CARES Act and the CAA require the IRS to send a notice to individuals notifying them
of the amount of the payment, the method used to send the payment, and the telephone
number to contact the IRS. The IRS established processes to send notices for both advance
payments. Taxpayers can use these notices to determine the total amount of EIP received when
determining whether they are eligible to receive an RRC on their Tax Year 2020 tax return.
Claiming the RRC
The RRC is a refundable tax credit claimed on Line 30 of Form 1040, U.S. Individual Income Tax
Return. Individuals who claim the RRC must reduce the credit by any EIP they received. The IRS
refers to this process as reconciling EIPs. Individuals use a worksheet in the Form 1040
instructions to reconcile their EIPs and determine the amount of the RRC they can claim on their
Tax Year 2020 tax return. Figure 2 shows where taxpayers claim the RRC on the Form 1040.

6 Numbers do not add up due to rounding.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Figure 2: Tax Year 2020 Form 1040, Page 2

Source: IRS.gov, Tax Year 2020 Form 1040.
Those who received more in EIPs than they are entitled do not have to repay the excess credit.
Individuals who received less in EIPs than they are entitled can claim the additional RRC on their
tax return. Any additional RRC will be included in the taxpayer’s refund. Unlike EIPs, the CARES
Act and the CAA authorize the IRS and the Department of the Treasury (hereafter referred to as
Treasury) Bureau of the Fiscal Service (BFS) to use the RRC to offset unpaid taxes and other
Federal debt such as child support.7
Verification of RRC claims
When tax returns with an RRC claim are processed, the IRS compares the amount claimed by the
taxpayer to the amount of EIPs received that are recorded on their tax account. Tax returns with
a discrepancy between the RRC claimed by the taxpayer and the RRC computed by the IRS’s
computer program are sent to the Error Resolution function (ERS) for manual verification. The
ERS tax examiner uses EIP information recorded in the taxpayer’s tax account and information
contained on the tax return to manually re-compute the taxpayer’s allowable RRC. If the RRC
claimed on the tax return is more than the amount computed by the ERS tax examiner, the tax
examiner will deny the excess credit.
The IRS sends taxpayers a notice explaining the reason their RRC was changed. The notice also
includes instructions for contacting the IRS if the taxpayer does not agree with the RRC
adjustment.

7 In March 2021, the IRS announced it was exercising discretion and not offsetting the RRC to unpaid Federal prior
year tax debt. However, the RRC will continue to be offset to other Federal debt.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Results of Review
As of May 27, 2021, the IRS processed 128 million tax returns, of which 26.3 million tax returns
claimed $39.2 billion in the RRCs. Our review of the 26.3 million tax returns found that the IRS
correctly calculated the allowable RRC amount for 26.1 million (99.3 percent) of the returns.
However, we identified 355,015 ineligible individuals who received potentially erroneous RRCs
totaling more than $603 million. These include the RRCs issued to individuals who are claimed
as a dependent on another tax return, claimed as a dependent on more than one tax return, or a
dependent for which an EIP was already paid; and individuals who are nonresident aliens or
Territory residents.
Our review also found that Treasury debit card policies and the manual verification of RRC
claims with error conditions unnecessarily burdened some taxpayers.
We issued 12 alerts to IRS management during our review to notify them of deficiencies we
identified. IRS management implemented programming changes in response to one alert and
agreed to take action on four additional alerts.
Calculation of Allowable Recovery Rebate Credit Was Correct for
99.3 Percent of Claims Reviewed
The IRS correctly calculated the RRC amount for 26.1 million (99.3 percent) of the 26.3 million
tax returns processed as of May 27, 2021, with an RRC claim. The 181,743 returns in which the
IRS’s calculation of the RRC amount was incorrect include:
•
117,314 returns in which the calculated RRCs were $218.7 million more than the
taxpayers were entitled to receive.
•
64,429 returns in which the calculated RRCs were $80 million less than the taxpayers
were entitled to receive.
The incorrectly calculated RRCs resulted from:
•
ERS tax examiner errors. Our testing identified 167,130 returns with the RRCs totaling
$281.1 million in which tax examiners incorrectly calculated the RRC when resolving RRC
claims that had an RRC reporting discrepancy. For example, tax examiners incorrectly
calculated the number of eligible dependents on the tax return and allowed the wrong
amount of the RRC.
•
IRS programming errors. Our testing identified 11,797 returns with the RRCs totaling
$15.2 million in which IRS programming incorrectly included EIPs issued to the taxpayer’s
spouse in the calculation of the taxpayer’s allowable RRC on a Married Filing Separate
return.
•
Timing issues. Our testing identified 2,816 returns with the RRCs totaling $2.3 million in
which a returned EIP was incorrectly included in the RRC calculation. These calculation
errors occurred because the IRS processed tax returns and EIP reversals simultaneously,
e.g., EIP was reversed at the same time or after the tax return was processed.
In addition, our review of the 26.3 million RRC claims processed as of May 27, 2021, found that
the IRS’s RRC fraud filters were generally working as intended. However, a programming error

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
prevented 7,478 tax returns with potentially erroneous RRCs totaling $29.4 million from being
identified for additional review before the RRCs were paid. IRS programming did not identify
Married Filing Joint returns for additional review when the spouse had a nonwork SSN. To be
eligible for the RRC, an individual must have an SSN that is valid for work. In addition, the IRS’s
programmed RRC dollar tolerance prevented 348 tax returns with the RRCs totaling $85,446
from additional review.
Recommendation 1 (E-Mail Alert): On June 15, 2021, we alerted IRS management of our
concerns with the systemic calculation of the allowable RRC amount. We recommended that IRS
management review the returns we identified and provide us with any corrective actions they
intended to take.

Management’s Response: The IRS agreed with this recommendation. IRS management
reviewed the identified returns, confirmed the errors, and implemented programming
changes to correct the condition. Management also plans to review the affected returns
and take appropriate action to correct them. We confirmed the programming changes
were implemented and operating as intended.
Recommendation 2 (E-Mail Alert): On March 19, 2021, we alerted IRS management of our
concerns that an incorrect amount of advance payments was being used to calculate the RRC for
some taxpayers. We recommended that IRS management review the returns we identified and
provide us with any corrective actions they intended to take.

Management’s Response: The IRS agreed with this recommendation. IRS management
determined the incorrect amounts of advance payments were due to timing issues
caused when tax returns claiming the RRC were processed before returned advance
payments posted to the taxpayer accounts. Upon posting, the returned payments
adjusted the advance payment amounts recorded for the taxpayers. The condition could
cause a return to be referred to the ERS for review and treatment. When the returns
were subsequently reviewed by employees, the error condition was revalidated using the
current payment information, which included any adjustments made for advance
payments that posted after the return had been identified for review. In those cases in
which the RRC was adjusted before returned payments were recorded, the math error
notice sent to the taxpayer(s) informed them of options for notifying the IRS if they
disagreed with the adjustment. When taxpayers disagree with math error notices, the
disagreed issue is researched, and the account will be corrected if the math error notice
was issued in error. With respect to the RRC, current payment information reflecting
subsequently posted returned payments is available to the employee researching the
issue. Upon correction, the taxpayer will receive the additional refund to which they are
entitled.

Office of Audit Comment: Although IRS management agreed with our
recommendation, the process IRS management noted does not consider the
additional burden these taxpayer face in obtaining their RRC. The math error
notice referenced by management requires the taxpayer to write or call the IRS to
receive their RRC. As of March 19, 2022, the IRS had a backlog of 2.2 million
unprocessed individual amended tax returns. As of March 18, 2022, the IRS

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
reported a 16.5 percent toll-free telephone Level of Service8 with a 26-minute
average speed of answer.
Recommendation 3 (E-Mail Alert): On April 6, 2021, we alerted IRS management of our
concerns regarding ERS tax examiners incorrectly computing the RRC (see management’s action
in response to Recommendation 1). We recommended the IRS review the returns we identified
and take the actions necessary to ensure that these taxpayers receive the amount of the RRC
they are entitled to receive.

Management’s Response: The IRS agreed with this recommendation and plans to
review the affected returns and take appropriate action to correct them.
Recommendation 4 (E-Mail Alert): On March 12, 2021, we alerted IRS management of our
concerns that some tax returns were not being identified by fraud filters. We recommended IRS
management review the returns we identified and associated fraud filters to identify why these
returns were not selected and make programming changes as necessary to ensure proper
identification of returns with potentially questionable claims.

Management’s Response: The IRS agreed with this recommendation. IRS management
has reviewed the identified tax returns and confirmed the fraud filters had not selected
all returns they should have. Programming updates were implemented on
March 18, 2021, to address the issue.
The Commissioner, Wage and Investment Division, should:
Recommendation 5: Conduct analysis to identify Tax Year 2020 RRC claims processed after
May 27, 2021, to identify other returns in which ERS tax examiners incorrectly calculated the
number of allowable dependents and returns that were not reprocessed per IRS guidance after
programming was corrected, and ensure that these taxpayers receive the correct amount of the
RRC.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that reviewing RRC claims processed after May 27, 2021, would
require them to divert limited resources for which there is only a 0.7 percent projected
error rate. As stated previously, there is a process of review and reconsideration
available to individuals who believe a correction made to their return during processing
is not correct. The IRS proactively communicated with taxpayers about perceived
discrepancies and provided information on avenues for resolution. Taxpayers are
notified of any changes to the RRC and have the right to reconsideration and appeal if
they do not agree with them.

Office of Audit Comment: Although the projected error rate is low, the number
of taxpayers affected and the amount of the RRC is substantial. For example, we
identified 181,743 tax returns with incorrect RRCs totaling $298.7 million as of
May 27, 2021. In addition, the process IRS management noted does not consider
the additional burden these taxpayers face in obtaining their RRC. The process

8 The Level of Service is the IRS’s primary measure of service to taxpayers. It is the relative success rate of taxpayers
who call for live assistance on the IRS’s toll-free telephone lines. The IRS’s measure is titled Customer Service
Representative Level of Service.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
referenced by management requires the taxpayers to write or call the IRS to
receive their RRC. As of March 19, 2022, the IRS had a backlog of 2.2 million
unprocessed individual amended tax returns. As of March 18, 2022, the IRS
reported a 16.5 percent toll-free telephone Level of Service with a 26-minute
average speed of answer.
Recovery Rebate Credits Paid to Ineligible Individuals
Our review of tax returns processed as of May 27, 2021, with an RRC claim identified
355,015 individuals who filed tax returns with potentially erroneous claims. These
individuals received the RRC totaling more than $603 million. We issued three alerts to IRS
management regarding our concerns. IRS management agreed that 7,022 of the 355,015
individuals we identified received an RRC for a dependent who was claimed on more than one
tax return. IRS management also agreed that the 14,508 individuals we identified who were
claimed as a dependent on someone else’s tax return overclaimed their RRCs. These erroneous
RRC payments totaled more than $32.9 million. IRS management stated that the overclaimed
RRC will be addressed for those returns selected for post-processing treatment. However, IRS
management stated that the IRS does not have the resources to address every return involving a
duplicated dependent. For the remaining individuals, IRS management did not agree with our
conclusion that these individuals were not eligible to receive an RRC.
The potentially ineligible individuals we identified include:
• Individuals who are claimed as a dependent on another tax return
We identified 14,508 individuals who received the RRCs totaling more than $25.2 million
who were claimed as a dependent on someone else’s tax return. The CARES Act and the
CAA state that an individual is not eligible for the RRC if they can be claimed as a
dependent by someone else. Individuals are instructed to check a box on their tax return
to notify the IRS that they can be claimed as someone else’s dependent. The IRS relied
on this checkbox to identify individuals who were not eligible for an RRC. However, the
14,508 individuals we identified did not check the dependent checkbox on their return as
required.
In addition, we identified 238,680 individuals under the age of 25 who are potential
dependents of another taxpayer. As of October 28, 2021, these individuals received
nearly $427 million in potentially erroneous RRCs. These individuals were claimed as a
dependent on a Tax Year 2019 return and used the same address from the Tax Year 2019
return on their Tax Year 2020 return. Further, IRS records show that these individuals did
not have the means to provide at least one-half of their support during Tax Year 2020.
These include:
o 215,551 individuals age 17 to 24 for which IRS records show the individual
attended9 a post-secondary education institution during Tax Year 2020 and
reported less than $5,000 in income on their Tax Year 2020 return. These
individuals received $385 million in the RRCs.

9 IRS records indicate these individuals attend at least half time.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
o 22,020 individuals age 17 or 18 for which IRS records show the individual did not
attend a post-secondary education institution during Tax Year 2020 but reported
less than $5,000 in income on their Tax Year 2020 return. These individuals
received nearly $39.9 million in the RRCs.
o 1,109 individuals under the age of 17 who received nearly $2 million in the RRCs.
The Commissioner, Wage and Investment Division, should:
Recommendation 6: Review the 14,508 individuals identified in which the IRS issued an RRC to
an individual who was claimed as a dependent on someone else’s tax return but did not check
the dependent box and take the actions needed to recover payments that are determined to be
erroneous.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that eligibility for the RRC and the amount allowable is determined
from the information individuals provide on their tax returns. Each return is signed by
the return filer(s), declaring under penalties of perjury that they have examined the
return and accompanying schedules and statements, and to the best of their knowledge
and belief, they are true, correct, and complete. When individuals fail to indicate they
may be claimed as dependents by others, the IRS’s post-processing compliance checks
would identify those returns and the returns on which they were claimed by others.
Determining who is entitled to claim the dependent and any associated tax benefits is a
question of fact that is addressed under deficiency procedures by its compliance
functions. These returns are subject to selection for examination as resources allow.

Office of Audit Comment: We plan to evaluate the effectiveness of IRS efforts
to identify and recover erroneous RRC payments.
Recommendation 7: Conduct analysis of Tax Year 2020 tax returns processed after
May 27, 2021, to identify additional individuals who received an RRC and were also claimed as a
dependent on someone else’s tax return but did not check the dependent box, and take the
actions needed to recover the RRC payments that are determined to be erroneous.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that reviewing returns processed after May 27, 2021, would require
the IRS to divert limited resources to review these returns when such a small portion, five
one-hundredths of 1 percent, are projected to be affected by the issue. The IRS’s
post-processing compliance checks analyze all returns for instances of dependents
claimed on multiple returns and will identify them for potential selection and
examination by its compliance functions.

Office of Audit Comment: We plan to evaluate the effectiveness of IRS efforts
to identify and recover erroneous RRC payments.
Recommendation 8: Review the 238,680 individuals under the age of 25 identified as potential
dependents and take the actions needed to recover payments that are determined to be
erroneous.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that Internal Revenue Code §§ 6428 and 6428A do not have age

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
restrictions or a minimum income amount applicable to dependents claimed previously
on 2018 or 2019 returns. The returns management reviewed reported wages and
salaries as well as other income. Therefore, the credits allowed on these returns during
processing are correct. All returns are subject to examination and if, upon examination,
it is found the individuals are the dependents of other taxpayers, the returns will be
adjusted accordingly.

Office of Audit Comment: We plan to evaluate the effectiveness of IRS efforts
to identify and recover erroneous RRC payments.
• Dependents who had already received an EIP
We identified 15,741 individuals who received over $12.9 million more in the RRCs for a
qualifying dependent than they were entitled. These improper payments involve
individuals whose filing status changed between Tax Year 2019 and Tax Year 202010 and
occurred because the IRS does not record EIPs by dependent. For a Married Filing Joint
tax return, the IRS records one-half of the EIP issued for the taxpayers and their
dependents on each spouse’s tax account. This incorrectly makes it appear as if a
taxpayer received an EIP for fewer dependents than was actually paid. As a result,
changes in a taxpayer’s filing status or how dependents are claimed from year to year
can result in erroneous RRC payments. For example,11 a taxpayer received an EIP for
their self, their spouse, and two children based on the Tax Year 2019 Married Filing Joint
return. However, the taxpayer’s tax account shows the taxpayer only received an EIP for
their self and one child, i.e., one-half of the total EIP issued. The taxpayer files as Head of
Household in Tax Year 2020 with the same two children and claims an RRC for one of the
children. Because the taxpayer’s tax account shows the taxpayer only received an EIP for
one child, the IRS incorrectly allowed the RRC for the second child.
The Commissioner, Wage and Investment Division, should:
Recommendation 9: Review the 15,741 individuals identified in which the individual incorrectly
received an RRC and an EIP for the same qualifying child and take the actions needed to recover
RRC payments that are determined to be erroneous.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated the returns of individuals who received both an EIP and an RRC for
the same qualifying child are subject to a selection for examination by their compliance
programs.

Office of Audit Comment: We plan to evaluate the effectiveness of IRS efforts
to identify and recover erroneous RRC payments.
Recommendation 10: Conduct analysis of Tax Year 2020 tax returns processed after
May 27, 2021, to identify additional individuals who received an RRC for a qualifying child for

10 The first EIP could also have been issued using a Tax Year 2018 tax return if a Tax Year 2019 return was not
available.
11 All examples are hypothetical.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
which the IRS has already paid an EIP or an RRC to someone else and take the actions needed to
recover RRC payments that are determined to be erroneous.

Office of Audit Comment: We plan to evaluate the effectiveness of IRS efforts
to identify and recover erroneous RRC payments.
• Dependents claimed on more than one individual tax return
We identified 7,022 individuals who received more than $7.7 million in potentially
erroneous RRCs for qualifying children who were claimed for the RRC on more than one
tax return. These 7,022 tax returns involve 8,410 unique dependent Taxpayer
Identification Numbers (TIN). The number of times a particular dependent’s TIN was
used on a tax return ranged from two tax returns to five tax returns. To be a qualifying
child for the RRC, the child must be a dependent child under 17 years of age as defined
for the Child Tax Credit. In addition, Internal Revenue Code § 152(c)(4) states that a child
can only be the qualifying child of one taxpayer, i.e., can only be claimed on one tax
return.
However, IRS processes do not prevent the issuance of multiple RRCs for the same
dependent. The IRS captures each use of a TIN for an applicable tax year in the
Duplicate TIN database. The TINs that are used more than once are identified with a
priority code. However, IRS management informed us that, at the time of processing
returns, the IRS does not have the statutory authority nor ability to review returns to
determine who is entitled to claim the dependent. IRS management stated that the
overclaimed RRCs will be addressed for those returns selected for post-processing
treatment. However, IRS management stated that the IRS does not have the resources
to address every return involving a duplicated dependent.
The Commissioner, Wage and Investment Division, should:
Recommendation 11: Review the 7,022 individuals identified in which the IRS issued multiple
RRCs for a qualifying child who was claimed on more than one tax return and take the actions
needed to recover payments that are determined to be erroneous.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that eligibility for the RRC and the amount allowable is determined
from the information individuals provide on their tax returns. Each return is signed by
the return filer(s), declaring under penalties of perjury that they have examined the
return and accompanying schedules and statements, and to the best of their knowledge
and belief, they are true, correct, and complete. When qualifying children are claimed on
more than one return for the same tax year, the IRS’s post-processing compliance checks
will identify those returns. Determining who is entitled to claim the qualifying child and
any associated tax benefits is a question of fact that is addressed under deficiency
procedures by the IRS’s compliance functions. These returns are subject to selection for
examination as resources allow.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season

Office of Audit Comment: We plan to evaluate the effectiveness of IRS efforts
to identify and recover erroneous RRC payments.
Recommendation 12: Conduct analysis of Tax Year 2020 tax returns processed after
May 27, 2021, to identify additional individuals who received an RRC for a qualifying child who
was claimed on more than one tax return and take the actions needed to recover payments that
are determined to be erroneous.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated eligibility for the RRC and the amount allowable is determined from
the information individuals provide on their tax returns. Each return is signed by the
return filer(s), declaring under penalties of perjury that they have examined the return
and accompanying schedules and statements, and to the best of their knowledge and
belief, they are true, correct, and complete. When qualifying children are claimed on
more than one return for the same tax year, the IRS’s post-processing compliance checks
will identify those returns. Determining who is entitled to claim the qualifying child and
any associated tax benefits is a question of fact that is addressed under deficiency
procedures by the IRS’s compliance functions. These returns are subject to selection for
examination as resources allow.

Office of Audit Comment: We plan to evaluate the effectiveness of IRS efforts
to identify and recover erroneous RRC payments.
• Nonresident aliens
We identified 75,594 tax returns with RRC claims totaling more than $125 million that
were issued to individuals who are potentially a nonresident alien. The citizenship code
associated with these individuals’ SSNs indicates they are a legal alien authorized to work
in the United States. However, these individuals had no Federal Insurance Contributions
Act (FICA) tax withheld from their wages in Calendar Year 2020, which indicates they are
likely not considered a U.S. resident. Certain nonresident aliens are exempt from FICA
taxes based on their VISA type, such as nonresident alien students and professors
temporarily present in the United States.
The CARES Act and the CAA state that to be eligible for an EIP, an individual must be a
U.S. citizen or resident alien. The IRS has processes in place to prevent the issuance of
the RRC to nonresident aliens who file a Form 1040-NR, U.S. Nonresident Alien Income
Tax Return. However, as we reported in May 2021, the IRS has no processes to identify
nonresident aliens who incorrectly file a Form 1040.12 In addition, our review of IRS
processes to identify and prevent individual international taxpayer fraud found that
foreign individuals are potentially filing the incorrect tax form to claim tax benefits to
which they are not entitled.13
IRS management does not agree with the method we used to determine whether an
individual is potentially a nonresident alien but, as we reported previously, continues to

12 Treasury Inspector General for Tax Administration, Report No. 2021-46-034, Implementation of Economic Impact
Payments (May 2021).
13 Treasury Inspector General for Tax Administration, Report No. 2021-40-057, Improvements Are Needed to Identify
Potentially Fraudulent Individual International Tax Returns During Processing (Sept. 2021).

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
offer no alternative methodology to ensure that nonresident aliens are not receiving
payments.14 This is despite the continued reports by nonresident aliens themselves in
news media outlets of erroneously receiving EIP payments. IRS management stated that
the exemption from employer withholding of FICA taxes is not a proxy for an individual’s
status as a resident alien or a nonresident alien. We agree there are exceptions in which
a valid foreign person could be considered a resident alien and not subject to FICA tax.
However, we are unable to identify individuals with these exceptions with the available
tax return data. We previously recommended that the IRS implement processes to
identify foreign individuals who do not file the correct tax form.15 IRS management
agreed with our prior recommendation, stating that they plan to study the feasibility of
sampling this work and take appropriate actions based on the result of the study and
available resources.
The Commissioner, Wage and Investment Division, should:
Recommendation 13: Review the 75,594 tax returns identified in which the individual is
potentially a nonresident alien and take the actions needed to recover the RRC payments that
are determined to be erroneous.

Management’s Response: The IRS disagreed with this recommendation and the
Treasury Inspector General for Tax Administration’s methodology to identify taxpayers
who were potentially nonresident aliens. IRS management stated that the exemption
from employer withholding of FICA taxes is not a proxy for an individual’s status as a
resident alien or a nonresident alien. There are exceptions in which a valid foreign
person could be considered a resident alien and not subject to FICA tax. Determining
resident status is a question of fact that must be addressed under deficiency procedures
by the IRS’s compliance functions. These returns are subject to selection for examination
as resources allow.

Office of Audit Comment: As noted in our report, IRS management offers no
alternative methodology to ensure that nonresident aliens are not receiving the
RRC. In addition, IRS management’s statement that these tax returns are subject
to examination is incorrect. As stated previously, our review of IRS processes to
identify and prevent individual international taxpayer fraud found that the IRS has
no processes to identify nonresident aliens who incorrectly file a Form 1040.
Recommendation 14: Perform analysis of Tax Year 2020 tax returns filed after May 27, 2021, to
identify additional tax returns with the same characteristics as those the IRS determined were
filed by a nonresident alien and take the actions needed to recover erroneous RRC payments.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that determining resident status is a question of fact that must be
addressed under deficiency procedures by the IRS’s compliance functions. These returns
are subject to selection for examination as resources allow.

14 Treasury Inspector General for Tax Administration, Report No. 2021-46-034, Implementation of Economic Impact
Payments (May 2021).
15 Treasury Inspector General for Tax Administration, Report No. 2021-40-057, Improvements Are Needed to Identify
Potentially Fraudulent Individual International Tax Returns During Processing (Sept. 2021).

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season

Office of Audit Comment: IRS management’s statement that these tax returns
are subject to examination is incorrect. As stated previously, our review of IRS
processes to identify and prevent individual international taxpayer fraud found
that the IRS has no processes to identify nonresident aliens who incorrectly file a
Form 1040.
• Territory residents
We identified 3,470 individuals who filed tax returns with RRC claims totaling more than
$5.3 million. Individuals who filed these returns also appeared on a U.S. Territory report
associated with an RRC issued by a U.S. Territory. Some of these individuals listed a U.S.
domestic address on their U.S. tax return used to calculate the RRC while others listed a
U.S. Territory address on their U.S. tax return. We provided these results to the IRS on
December 3, 2021, and IRS management stated these returns were not selected for
review because they did not meet filter criteria.
During the 2021 Filing Season, the IRS created fraud filters to identify the RRCs claimed
by individuals who may have received or are eligible to receive the RRC from a U.S.
Territory. These returns were selected for further review before the RRC could be issued.
These filters identify tax returns filed using a U.S. Territory address. However, the tax
returns we identified, in which the taxpayer appeared on a U.S. Territory report, were
filed using a domestic, i.e., United States, address.
Recommendation 15: The Commissioner, Wage and Investment Division, should coordinate
with the Territories to confirm and recover erroneous RRCs.

Management’s Response: The IRS agreed with this recommendation and has
implemented a plan to coordinate with the Territories and share information that will
enable the Territories to recover erroneous RRCs issued by the Territories, to the extent
permitted under the relevant territory’s domestic law. The IRS does not have the
authority, however, to direct the territories to recover erroneous RRCs or to confirm that
any amounts recovered are reported to the IRS, given that the territories are
autonomous tax administrations.
Management Needs to Take Actions to Ensure That Eligible Individuals
Receive Their Recovery Rebate Credit
Our review of tax returns filed as of May 27, 2021, identified approximately 10 million individuals
who are potentially eligible for an RRC and have not received it. These include:
•
Nearly 6.9 million individuals who did not receive their EIP in Calendar Year 2020 and
have not filed a Tax Year 2020 tax return to claim the RRC. These include nonfiler
individuals, beneficiaries, and individuals deceased in Calendar Year 2020 who need to
file a Tax Year 2020 return to claim their allowable RRC.
•
Approximately 3.1 million individuals eligible for the RRC based on their Tax Year 2020
return who did not claim the credit. These include individuals who received EIP and are
entitled to an additional RRC based on their Tax Year 2020 return. During our review, we
recommended that the IRS proactively issue these individuals their RRC without requiring

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
them to file an amended tax return. IRS management disagreed with our
recommendation, stating that they assume that the taxpayer did not claim the RRC
because they knew they had already received an EIP or were otherwise not eligible.
Based on our review of these returns, we do not agree with IRS management’s
assumption as these taxpayers did not receive an EIP for the full amount and are eligible
for the RRC. The only way these taxpayers presently can obtain the RRC is to be aware
that they qualify and request the RRC on their Tax Year 2020 return.
Management’s disagreement to proactively assist taxpayers by issuing the RRC is
inconsistent with actions taken to assist other taxpayers
IRS management’s disagreement with our recommendation regarding the 3.1 million eligible
individuals who filed a tax return is inconsistent with actions that the IRS has taken to adjust tax
returns for the Unemployment Compensation Exclusion enacted in the American Rescue Plan
Act (ARPA).16 The IRS proactively adjusted individual tax returns to exclude up to $10,200 in
unemployment benefits from taxable income. Based on this adjustment, the IRS then
proactively issued the RRCs for those taxpayers who qualified, regardless of whether the
taxpayer claimed the credit on their tax return. These taxpayers were not required to contact
the IRS or file an amended tax return to receive their RRC. At the time of this decision, the IRS
had a significant backlog of unprocessed amended tax returns. Proactively adjusting tax returns
for the Unemployment Compensation Exclusion and the RRC reduced burden on the impacted
taxpayers who would otherwise have their additional refunds delayed because of the amended
return backlog. Proactively assisting these 3.1 million taxpayers would ensure that these
taxpayers receive their stimulus payment and prevent further increases in the ongoing and
significant backlog of unprocessed amended tax returns. As of October 16, 2021, the IRS still
has more than 2.7 million unprocessed individual amended tax returns. These eligible taxpayers
can currently obtain their RRC by filing an amended tax return or contacting the IRS to request
the credit.
The Commissioner, Wage and Investment Division, should:
Recommendation 16: Review the nearly 6.9 million potentially eligible individuals we provided
to the IRS who had not filed a Tax Year 2020 tax return as of May 27, 2021, and send a letter to
those individuals who still have not filed a Tax Year 2020 return to encourage them to file a
return and claim the RRC if eligible.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that taxpayers are not required to claim the RRC. The IRS has widely
communicated the need to file the Tax Year 2020 tax return to claim the credit based on
current household circumstances.

Office of Audit Comment: It is unrealistic for IRS management to assume that
prior IRS communications are sufficient to ensure that all individuals, including
those who do not normally file a tax return, understand whether they are eligible
for the RRC and how to claim it.

16 Pub. L. No. 117-2, 135 Stat. 4 (codified in scattered sections of 7, 12, 15, 19, 20, 26, 29, 42, and 45 U.S.C.).

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Recommendation 17: Review the 3.1 million eligible individuals we identified who filed a Tax
Year 2020 return and proactively issue these taxpayers their credit.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that taxpayers are not required to claim the RRC. The IRS has widely
communicated the availability of the credit based on 2020 eligibility.

Office of Audit Comment: For the reasons noted in the text of the report on
page 14, we do not believe that IRS management’s response is sufficient.
Recommendation 18: Conduct additional analysis to identify tax returns filed after
May 27, 2021, in which an individual is eligible for the RRC based on their Tax Year 2020 tax
return and did not claim the credit, and proactively issue the taxpayer their credit.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that eligible taxpayers received the RRC when it was claimed;
however, taxpayers are not required to claim it. The IRS has widely communicated the
availability of the credit based on 2020 eligibility.

Office of Audit Comment: For the reasons previously noted, we do not believe
IRS management’s response is sufficient.
Recommendation 19: If IRS management does not proactively issue the RRC to individuals
who filed a return and did not claim the credit, the IRS should notify these individuals that they
are eligible to claim the RRC and should file an amended tax return to claim the credit.

Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that the IRS has widely communicated the availability of the RRC
based on 2020 eligibility. Extensive outreach was performed through the posting of
Frequently Asked Questions on IRS.gov, press releases, social media postings, targeted
outreach to low-income and other disadvantaged populations, and through partnerships
with other government agencies and community organizations.

Office of Audit Comment: For the reasons previously noted, we do not believe
IRS management’s response is sufficient.
Debit Card Policies Unnecessarily Delay Access to Stimulus Relief for
Some Taxpayers
Our review of RRC claims filed as of May 27, 2021, identified 75,395 taxpayers who had
$77.8 million in RRC claims denied because IRS records show the taxpayer had already received
their credit on an EIP debit card.17 Each of these taxpayers received an EIP debit card, but none
had activated their card as of May 30, 2021. On March 4, 2021, the BFS sent taxpayers who had
not activated their debit card a letter reminding them that their EIPs were issued on a debit card.
However, 54,286 (72 percent) of the 75,395 individuals whose RRC was denied who received the
reminder letter still had not activated their debit card as of July 31, 2021.

17 A debit card, instead of a paper check, containing the stimulus payments. The BFS provides information to the IRS
identifying who had not activated or had returned their debit card. The IRS notates the taxpayer’s tax account to
show their EIP was issued on a debit card.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
To obtain their RRC payment, these individuals must contact the IRS in response to the notice
they received informing them that their RRC claim was denied. Once the taxpayer contacts the
IRS, the taxpayer is told that they must contact the debit card issuer, Metabank® to activate their
debit card or obtain a replacement card. Taxpayers can also choose to cancel their debit card
and receive the funds in the form of a paper check from Metabank. However, when a card is
returned to Metabank, e.g., is undeliverable, the funds are returned to the IRS. The IRS will
reverse the EIP in the individual’s tax account so they can claim the RRC on their Tax Year 2020
tax return. An EIP debit card remains valid for three years from the date of issuance, e.g., a card
issued in June 2020 will remain valid until June 2023. As such, individuals who do not activate
their debit card or contact Metabank to return or cancel the card will not be able to obtain their
RRC until three years have passed when the debit card expires.
We notified IRS management during this review of our concerns that the issuance of debit cards
was unnecessarily delaying some taxpayers’ access to their stimulus payments. Individuals
receiving a debit card were not asked if this was the manner they wished to receive their EIP and
have no familiarity with the IRS issuing funds in this manner. This was evident as a number of
news outlets reported that many individuals who were issued an EIP debit card commented that
they threw the card away or destroyed it because they did not know what it was. We
recommended that the IRS work with the BFS to resolve individuals’ accounts who have not
activated their debit card and reverse the EIP so these individuals can receive the RRC on their
Tax Year 2020 tax return. This is the same process the IRS uses for advance payments issued by
paper check that are returned as undeliverable or a direct deposit that is rejected by the bank.
IRS management did not agree with our recommendation. IRS management stated that the fact
that an individual has not activated their debit card does not mean they are unaware that they
received an EIP. IRS management believes some individuals may be holding the card for later
use.
Finally, IRS management informed us that the Treasury is continuing to send letters to
individuals who were issued a debit card to remind them to contact Metabank and activate their
card. Management stated that the number of activations in response to these letters indicates
additional processes are not needed to ensure that these individuals have access to their
stimulus payment. Per Metabank reports, letters were sent on March 4, 2021, and
505,69718 unactivated EIP2 debit cards were subsequently activated. While these letters appear
to have an effect, there were still 527,443 EIP1 and EIP2 debit cards with payments totaling
nearly $483.8 million that had not been activated as of September 5, 2021.
The ARPA, enacted on March 11, 2021, created an additional RRC for Tax Year 2021. As with the
CARES Act and the CAA, the ARPA directs the IRS to make advance payments of the RRC to
taxpayers. As of September 5, 2021, the BFS issued advance ARPA RRC payments on a debit
card to more than 4.7 million individuals. These individuals are required to reconcile these
payments on their Tax Year 2021 tax return to determine whether they are entitled to receive
additional RRCs. As of September 5, 2021, 189,370 advance ARPA RRC debit cards still have not
been activated.

18 Between March 2, 2021 – March 29, 2021

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
The Commissioner, Wage and Investment Division, should:
Recommendation 20: Work with the BFS to ensure that individuals who were denied the RRC
and have still not activated their EIP1 or EIP2 debit card as of December 31, 2021, have EIPs
reversed in their tax account and are issued their RRC. These processes should include notifying
Metabank that the debit cards in question are to be cancelled.

Management’s Response: The IRS agreed with this recommendation and plans to
continue its ongoing efforts with the BFS to reverse any debit card that has been
returned or canceled by the recipient, and to issue the appropriate RRC.
Recommendation 21: Work with the BFS to obtain recurring data during Processing Year 2022
to identify individuals who have not activated their advance ARPA RRC debit card at the time a
return is filed and implement processes to reverse the advance payment so these individuals can
receive the RRC on their Tax Year 2021 tax return.

Management’s Response: The IRS agreed with this recommendation and plans to
continue its ongoing efforts with the BFS to reverse any debit card that has been
returned or canceled by the recipient, and to issue the appropriate RRC.
Manual Error Resolution Processes Caused Extended Delays in Processing
Recovery Rebate Credit Claims and Increase the Risk of Employee Error
As of May 27, 2021, there were 11.2 million returns identified with an RRC error, i.e., a
discrepancy between the RRC amount reported on a tax return and what the IRS computed, that
must be resolved by an ERS tax examiner. ERS tax examiners resolved 5.6 million returns as of
May 27, 2021. Returns identified for ERS review are suspended from processing and refunds are
held until the return can be reviewed by an IRS employee. Our review of tax returns corrected
by ERS tax examiners as of May 27, 2021, found that the IRS could leverage its computer
programming to more efficiently resolve RRC claims identified for error processing. Our analysis
of the 5.6 million returns resolved found that tax examiners accepted the computer calculated
RRC amount19 for more than 5.5 million (98.6 percent) of the resolved returns.
We shared our observations with IRS management and recommended they establish processes
to systemically adjust RRC claims using the IRS’s computer-calculated RRC calculation when
there is a discrepancy between the amount taxpayers reported on their return and the IRS’s RRC
calculation. IRS management informed us that ERS tax examiners began using an enhanced
keyboard map tool that guides the tax examiner step by step through the verification process
and corrects the taxpayer’s error by either assigning a math error code, e.g., disallowing the
credit, or asking the tax examiner to perform manual computation when applicable. We
observed the enhanced keyboard map tool and found that while the tool reduces the risk of
employee error when verifying RRC claims, it still requires a tax examiner to manually correct
each tax return. As of September 2, 2021, 512,132 returns with an RRC error code remained in
ERS inventory.

19 The amount of allowable RRC calculated by IRS computer programming.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Recommendation 22 (E-Mail Alert): We alerted the Commissioner, Wage and Investment
Division, of our concerns that the IRS was unnecessarily burdening taxpayers whose RRC claims
were identified for manual ERS review. We recommended the IRS develop processes to
systemically adjust RRC claims using the computer-generated RRC calculation.

Management’s Response: IRS management initially disagreed with our
recommendation. However, IRS management later informed us that they developed an
automated tool that evaluates Tax Year 2021 electronically filed returns that are
identified for manual review by the ERS. The tool analyzes the returns, identifies and
resolves those that meet the tool criteria, and releases the return to complete processing.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to assess the processing of RRC claims during the 2021
Filing Season, including ensuring that taxpayers are properly reconciling advanced EIPs received
during Calendar Year 2020. To accomplish our objective, we:
•
Ensured that Tax Year 2020 tax returns with claims for the RRC were processed correctly.
•
Ensured the RRC computed by the IRS was accurate.
•
Ensured that eligible individuals who did not receive their advance stimulus payment
received the correct RRC amounts.
•
Identified and quantified erroneous RRCs issued due to dependent-related statuses.
Performance of This Review
This review was performed with information obtained from the Large Business and International
Division in Washington D.C.; the Wage and Investment Division Headquarters and Return
Integrity and Compliance Services function in Atlanta, Georgia; and the Wage and Investment
Division Submission Processing function office in Covington, Kentucky, during the period
March through December 2021. We conducted this performance audit in accordance with
generally accepted government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objective. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit
objective.
Major contributors to the report were Russell P. Martin, Assistant Inspector General for
Audit (Returns Processing and Account Services); Deann L. Baiza, Director; Ngan B. Tang,
Audit Manager; Brieane K. Hamaoka, Senior Auditor; Jane G. Lee, Senior Auditor;
Michael J. Bibler, Auditor; and Tracy L. Winfield, Auditor.
Validity and Reliability of Data From Computer-Based Systems
During this review, we obtained extracts from the Entity Individual Master File; Generalize
Mainline Framework, Error Resolution files for Tax Year 2020; Individual Master File for Tax
Year 2020; Individual Return Transaction File for Processing Years 2019, 2020, and 2021;
Information Returns Master File for Tax Years 2019 and 2020; Individual Master File Refund Files;
and the National Account Profile for Processing Years 2020 and 2021 that were available on the
Treasury Inspector General for Tax Administration Data Center Warehouse. We also obtained
data from the IRS which detailed the specific individuals who were issued an EIP by a U.S.
Territory from January 1, 2021, through June 30, 2021. Before relying on the data, we ensured
that each file contained the specific data elements we requested. In addition, we selected
random samples1 of each extract and verified that the data in the extracts were the same as the

1 We used a random number generator to select our samples for use in determining whether the extract information
could be relied upon in conducting our testing.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
data captured in the Integrated Data Retrieval System. We also performed analysis to ensure
the validity and reasonableness of our data, such as ranges of dollar values and obvious invalid
values. Based on the results of our tests, we believe that the data used in our review were
reliable.
Internal Controls Methodology
Internal controls relate to management’s plans, methods, and procedures used to meet their
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They also include the
systems for measuring, reporting, and monitoring program performance. We determined that
the following internal controls were relevant to our audit objective: the process for planning
and controlling program operations for the issuance of the RRCs. We evaluated these controls
by meeting with IRS management, reviewing IRS procedures, and reviewing IRS reports.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Appendix II
Outcome Measures
This appendix presents detailed information on the measurable impact that our recommended
corrective actions will have on tax administration. These benefits will be incorporated into our
Semiannual Report to Congress.
Type and Value of Outcome Measure:
•
Taxpayer Rights and Entitlements – Potential; 11,781 individuals were allowed $15.2 million
less in the RRCs than they were entitled due to a programming error involving returns in
which the taxpayer claimed a Married Filing Separate status (see Recommendation 1).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Generalize Mainline Framework, Error Resolution files for Tax
Year 2020; the Individual Return Transaction File for Processing Year 2021 as of May 27, 2021;
and the National Account Profile for Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
11,797 returns involving programming errors, which incorrectly included EIPs issued to a
taxpayer’s spouse in the calculation of the taxpayer’s allowable RRC on a Married Filing Separate
return. This error allowed $15,248,540 less in the RRCs than the taxpayers were entitled. To be
conservative, we removed duplicate tax returns and returns that appeared in multiple error
populations to arrive at 11,781 individuals who were incorrectly allowed $15,237,936 less in
RRCs than entitled.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; 483 individuals allowed $406,407 in the
RRCs due to programming/timing issues from the simultaneous processing of tax returns
and posting of returned advance payments (see Recommendation 2).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Entity Individual Master File; the Individual Return Transaction
File for Processing Year 2021 as of May 27, 2021; and the National Account Profile for
Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
488 returns with programming/timing issues due to the simultaneous processing of tax returns
and posting of returned advance payments that allowed $412,507 more in the RRCs. To be
conservative, we removed duplicate tax returns and returns that appeared in multiple
populations to arrive at 483 individuals who were incorrectly allowed $406,407 in the RRCs.
Type and Value of Outcome Measure:
•
Taxpayer Rights and Entitlements – Potential; 2,322 individuals were allowed $1.9 million
less in the RRCs than entitled due to programming/timing issues from the simultaneous

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
processing of tax returns and posting of returned advance payments (see
Recommendation 2).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Entity Individual Master File; the Individual Return Transaction
File for Processing Year 2021 as of May 27, 2021; and the National Account Profile for
Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
2,328 returns with programming/timing issues due to the simultaneous processing of tax returns
and posting of returned advance payments that allowed $1,911,752 less in the RRCs. To be
conservative, we removed duplicate tax returns and returns that appeared in multiple
populations to arrive at 2,322 individuals who were incorrectly allowed $1,901,852 less in the
RRCs than entitled.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; seven individuals were incorrectly
allowed $62,600 in the RRCs due to programming and specific dollar tolerance related to
fraud filters (see Recommendation 4).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Entity Individual Master File; the Individual Master File for Tax
Year 2020; the Individual Return Transaction File for Processing Year 2021 as of May 27, 2021;
the Information Returns Master File for Tax Years 2019 and 2020; and the National Account
Profile for Processing Year 2021 as of June 10, 2021. In addition, we obtained data from the
IRS’s Return Integrity and Compliance Service.
Our computer analysis of tax returns received before March 16, 2021, identified 7,478 returns in
which programming and specific dollar tolerance issues allowed $29,376,058 more in the RRCs.
To be conservative, we removed returns that appeared in multiple populations to arrive at
seven individuals who were incorrectly allowed $62,600 in the RRCs.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; 116,652 individuals incorrectly allowed
$217.9 million in the RRCs due to ERS tax examiner errors (see Recommendation 3).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Generalize Mainline Framework, Error Resolution files for Tax
Year 2020; the Individual Return Transaction File for Processing Year 2021 as of May 27, 2021;
and the National Account Profile for Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
116,826 returns in which ERS tax examiners incorrectly allowed more than $218.2 million in the
RRCs. To be conservative, we removed duplicate tax returns and returns that appeared in
multiple populations to arrive at 116,652 individuals who were incorrectly allowed $217,927,531
in the RRCs.

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Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
Type and Value of Outcome Measure:
•
Taxpayer Rights and Entitlements – Potential; 50,161 individuals who received
$62.7 million less in the RRCs than entitled due to ERS tax examiner errors (see
Recommendation 3).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Generalize Mainline Framework, Error Resolution files for Tax
Year 2020; the Individual Return Transaction File for Processing Year 2021 as of May 27, 2021;
and the National Account Profile for Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
50,304 returns in which ERS tax examiners incorrectly calculated $62.8 million less in the RRCs.
To be conservative, we removed duplicate tax returns and returns that appeared in multiple
populations to arrive at 50,161 individuals who received $62,669,396 less in the RRCs than
entitled.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; 14,475 individuals incorrectly allowed
$25.2 million in the RRCs because the IRS relies on a checkbox to determine if a taxpayer
can be claimed as another individual’s dependent (see Recommendation 6).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for Tax Years 2019 and 2020; the Individual
Return Transaction File for Processing Year 2021 as of May 27, 2021; and the National Account
Profile for Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
14,508 returns with the RRCs totaling nearly $25.2 million in which the individual was claimed as
a dependent on someone else’s return. To be conservative, we removed duplicate tax returns
and returns that appeared in multiple populations to arrive at 14,475 individuals who were
allowed $25,163,596 more in the RRCs than entitled.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; 236,983 individuals incorrectly allowed
$424.4 million in the RRCs who are potentially a dependent of another taxpayer (see
Recommendation 8).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for Tax Year 2020; the Individual Return
Transaction File for Processing Years 2020 and 2021; the Individual Return Transaction File for
Processing Year 2021 as of May 27, 2021; and the National Account Profile for Processing
Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
238,680 returns with the RRCs totaling nearly $427 million in which the taxpayer is potentially a
dependent to another taxpayer. To be conservative, we removed duplicate tax returns and

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returns that appeared in multiple populations to arrive at 236,983 individuals who were allowed
$424,407,311 more in the RRCs than entitled.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; 15,673 individuals incorrectly allowed
$12.9 million in the RRCs due to the IRS not reconciling dependent EIPs (see
Recommendation 9).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for Tax Years 2019 and 2020; the Individual
Return Transaction File for Processing Years 2020 and 2021 as of May 27, 2021; and the National
Account Profile for Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
15,741 individuals with over $12.9 million more in the RRCs than they are entitled, due to the IRS
not reconciling dependent EIPs. To be conservative, we removed duplicate tax returns and
returns that appeared in multiple populations to arrive at 15,673 individuals who were allowed
$12,893,660 more in the RRCs than entitled.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; 6,939 individuals incorrectly allowed
$7.6 million in the RRCs in which qualifying children were claimed for the RRC on more
than one tax return (see Recommendation 11).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for Tax Years 2019 and 2020; the Individual
Return Transaction File for Processing Years 2020 and 2021 as of May 27, 2021; and the National
Account Profile for Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
7,022 returns with the RRCs totaling over $7.7 million for qualifying children who were claimed
on more than one tax return. To be conservative, we removed duplicate tax returns and returns
that appeared in multiple populations to arrive at 6,939 individuals who were allowed
$7,644,200 more in the RRCs than entitled.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; 75,433 individuals incorrectly allowed
$124.7 million in the RRCs because the IRS does not have processes to identify and prevent
nonresident aliens from filing Form 1040 (see Recommendation 13).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for Tax Year 2020; the Individual Return
Transaction File for Processing Year 2021 as of May 27, 2021; the Information Returns Master
File for Tax Year 2020; and the National Account Profile for Processing Year 2021 as of
June 10, 2021.

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Our computer analysis of tax returns that were processed as of May 27, 2021, identified
75,594 returns with the RRCs totaling over $125 million allowed to potential nonresident aliens.
To be conservative, we removed duplicate tax returns and returns that appeared in multiple
populations to arrive at 75,433 individuals who potentially were allowed $124,747,371 more in
the RRCs than entitled.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; 3,440 individuals incorrectly allowed
$5.2 million in the RRCs because they appear to have received the RRC from a
U.S. Territory (see Recommendation 15).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for Tax Year 2020; the Individual Return
Transaction File for Processing Year 2021 as of May 27, 2021; and the National Account Profile
for Processing Year 2021 as of June 10, 2021. We also obtained data from the IRS that detail the
specific individuals who were issued the RRCs by three U.S. Territories between January and
June 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
3,470 individuals who claimed more than $5.3 million in the RRCs in which the claims were
potentially duplicated because the taxpayers appeared on one of the Territory reports and filed
a tax return claiming the RRC with the IRS. To be conservative, we removed duplicate tax
returns and returns that appeared in multiple populations to arrive at 3,440 individuals who
were allowed $5,199,082 more in the RRCs than entitled.

Management’s Response: IRS management disagreed with our outcome measure. IRS
management stated that they cannot confirm that the IRS will realize the number or
amounts of payments referenced. IRS management stated that the Territories may or
may not take actions to recover erroneous RRCs, and they may or may not remit
recovered erroneous RRCs to the IRS. In addition, each Territory’s ability to recover may
be limited by its domestic law. IRS management stated that the Territories are not
considered states under the authority of the IRS and the Internal Revenue Code, which
defines the term “United States” as only the 50 States and the District of Columbia. For
federal tax purposes, the Territories are treated as beyond the physical borders of the
United States and are referred to as “possessions”. IRS management stated that they do
not have the authority to direct the territories to recover erroneous RRCs or require that
any amounts collected are reported to the IRS, given that the territories are autonomous
tax administrations.

Office of Audit Comment: As noted in IRS management’s response to
Recommendation 15, they have implemented a plan to coordinate with the
Territories and share information that will enable the Territories to recover
erroneous RRCs to the extent possible. Our outcome measure represents the
potential amount of erroneous RRC payments the IRS can recover as a result of
its coordination with the Territories. The actual amount of erroneous payments
the IRS recovers is dependent on the priority the IRS places on this effort and
each Territory’s domestic law.

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Type and Value of Outcome Measure:
•
Taxpayer Rights and Entitlements – Potential; 6.9 million individuals are eligible for the
RRC but have not filed a tax return (see Recommendation 16).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for Tax Year 2020; the Individual Return
Transaction File for Processing Year 2021 as of May 27, 2021; and the National Account Profile
for Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
6,889,349 individuals who are potentially eligible for an RRC but have not filed a tax return.
Individuals must file a return to claim the RRC even if they normally are not required to file a
return.
Type and Value of Outcome Measure:
•
Taxpayer Rights and Entitlements – Potential; 3.1 million individuals are potentially eligible
for the RRC but did not claim the credit on their return (see Recommendations 17 and 18).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for Tax Year 2020; the Individual Return
Transaction File for Processing Year 2021 as of May 27, 2021; and the National Account Profile
for Processing Year 2021 as of June 10, 2021.
Our computer analysis of tax returns that were processed as of May 27, 2021, identified
3,137,640 individuals who are potentially eligible for the RRC, but did not claim the credit on
their Tax Year 2020 return. To be conservative, we removed duplicate tax returns and returns
that appeared in multiple populations to arrive at 3,137,619 individuals who are potentially
eligible for the RRC.

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Appendix III
Recovery Rebate Credit Provisions
Comparison of Major Provisions of the CARES Act and the CAA

CARES Act, as amended
CAA
Payment
Amount
$1,200 per eligible individual
$2,400 for married filing joint filers
Additional $500 for each qualifying child,
i.e., dependent child under 17 years of age
as defined for the Child Tax Credit.
$600 per eligible individual
$1,200 for married filing joing filers
Additional $600 for each qualifying child,
i.e., dependent child under 17 years of
age as defined for the Child Tax Credit.
Phaseout
Total payment amount phased out by 5%
of adjusted gross income over the
following thresholds:
$75,000 Single or Married Filing Separate
$112,500 Head of Household
$150,000 Married Filing Joint and
Qualifying Widower
Total payment amount phased out by 5%
of adjusted gross income over the
following thresholds:
$75,000 Single or Married Filing Separate
$112,500 Head of Household
$150,000 Married Filing Joint and
Qualifying Widower
Eligibility
Everyone except:
•
Nonresident aliens
•
Dependents of other taxpayers
•
Estates and trusts
Everyone except:
•
Nonresident aliens
•
Dependents of other individuals
•
Estates and trusts
•
Individuals who died before
January 1, 2020
Identification
Requirements
Individuals and qualifying children1 must
have a valid SSN. To be valid, the SSN
must be:
•
Authorized to work in the United
States
•
Issued before the due date of the
applicable tax return.
Joint return filers can receive a payment if
at least one individual has a valid SSN.
The amount of the payment will be
computed for only those individuals and
qualifying children who have a valid SSN.

Military Exception - Married members of
the military are eligible for a payment for
themselves, their spouse, and their
qualifying children if at least one spouse
has a valid SSN.
Individuals and qualifying children must
have a valid SSN. The definition of a valid
SSN is the same as the first direct
payment.
Joint return filers can receive a payment if
at least one individual has a valid SSN.
The amount of the payment will be
computed for only those individuals and
qualifying children who have a valid SSN.
Military Exception – Same as the first
direct payment.
Advance
Issuance of
Payments
Tax Return Filers
Payments automatically issued based on
information from Tax Year 2019 returns
or, if unavailable, Tax Year 2018 returns.
Tax Return Filers
Payments automatically issued based on
information from Tax Year 2019 returns.

1 Qualifying Children include children who are adopted or placed for adoption and have an Adoption Taxpayer
Identification Number.

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CARES Act, as amended
CAA
Individual Not Required to File a Return
The IRS is authorized to use available
information to issue payments to
individuals who receive Social Security,
Railroad Retirement Board, Supplemental
Security Income, and Veteran benefits.
All other individuals who do not have a tax
return filing requirement, including those
experiencing homelessness, must file a
tax return to receive an advance payment.
Deadline: Advance payments cannot be
made after December 31, 2020.
Individuals Not Required to File a Return
The IRS is authorized to use available
information and information obtained
from the Social Security Administration
and Veteran Affairs to issue payments to
individuals who receive Social Security,
Railroad Retirement Board, Supplemental
Security Income, and Veteran benefits.
All other individuals who do not have a tax
return filing requirement, including those
experiencing homelessness, must file a
tax return to receive an advance payment.
Deadline: Advance payments cannot be
made after January 15, 2021.
Offsets
Advance Payment
Cannot be offset to satisfy unpaid tax debt
or other Federal debt except unpaid child
support. Garnishment of the advance
payment is not addressed.
The RRC
Credits claimed on a Tax Year 2020 return
can be offset for unpaid tax debt and other
Federal debt.
Advance Payment
Cannot be offset to satisfy unpaid tax debt
or other Federal debt, including unpaid
child support. The advance payment is
exempt from debt collection actions, such
as garnishment or levy, that occur after
the payment is issued.
The RRC
Same as the first direct payment.
Source: Treasury Inspector General for Tax Administration review of cited legislation.

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Appendix IV
Management’s Response to the Draft Report

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Appendix V
Glossary of Terms
Term
Definition
Individual Master File
The IRS database that maintains transactions or records of individual tax
accounts.
Individual Return
Transaction File
A database the IRS maintains that contains information on the individual tax
returns it receives.
Individual Taxpayer
Identification Number
Individual Taxpayer Identification Numbers are issued by the IRS to
individuals who are required to have a Taxpayer Identification Number for
Federal tax purposes but do not have and are not eligible to receive an SSN.
Integrated Data Retrieval
System
IRS computer system capable of retrieving or updating stored information.
It works in conjunction with a taxpayer’s account records.
National Account Profile
A compilation of selected entity data from various IRS Master Files and the
Social Security Administration.
Tax Year
A 12-month accounting period for keeping records on income and
expenses used as the basis for calculating the annual taxes due. For most
individual taxpayers, the tax year is synonymous with the calendar year.

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Appendix VI
Abbreviations
ARPA
American Rescue Plan Act
BFS
Bureau of the Fiscal Service
CAA
Consolidated Appropriations Act, 2021
CARES
Coronavirus Aid, Relief, and Economic Security
EIP
Economic Impact Payment
ERS
Error Resolution Function
FICA
Federal Insurance Contributions Act
IRS
Internal Revenue Service
RRC
Recovery Rebate Credit
SSN
Social Security Number
TIN
Taxpayer Identification Number

To report fraud, waste, or abuse,
call our toll-free hotline at:
(800) 366-4484
By Web:
www.treasury.gov/tigta/
Or Write:
Treasury Inspector General for Tax Administration
P.O. Box 589
Ben Franklin Station
Washington, D.C. 20044-0589

Information you provide is confidential, and you may remain anonymous.

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